Birmingham council has reversed a decision to ban the Royal British Legion from holding poppy collections in parts of the city centre in the runup to Remembrance Sunday.

The local authority had denied the charity access to a collection slot in November as the council has enforced new rules on the number of charity collections.

However, the Anthony Nolan Trust and Shelter have now relinquished their requests for 11 and 12 November, so the Royal British Legion will now be able to collect across the city on both days, the council said.

The Royal British Legion said it would have lost a huge amount of money from donations had the decision not been overturned.

The Poppy Appeal officially starts a week before Remembrance Sunday, which this year falls on 13 November. The charity was told it would not be allowed on New Street and High Street on the previous two days, although it was permitted to collect in other areas of the city.

A spokesman for the Anthony Nolan Trust said the charity had withdrawn its application to fundraise because it was not aware that other charities would be prevented from collecting at the same time.

He added: "We have withdrawn the licence to fundraise in Birmingham on 12 November and have asked that Birmingham city council now allocate this date to the Royal British Legion."

Following the requests by the Anthony Nolan Trust and Shelter, the council said it would offer the days to the Royal British Legion. A spokeswoman said: "Between 29 October and 13 November, the Royal British Legion has permission to make charitable collections across the whole or the major part of Birmingham every day. This includes the city centre on Armistice Day and Remembrance Sunday."

The council said it was a legal requirement that any organisation wishing to conduct a charitable street collection must first approach the authority for formal permission.

Each year the body requests that street collection applications for the following calendar year be sent to the licensing section by 1 November. The Royal British Legion did not submit an application by the deadline and first approached the council in May this year, when it was advised of all dates and locations still available, the spokeswoman said.

The news of the poppy ban had prompted criticism from soldiers' relatives, as well as from the charity. Ted Swann, vice-president of West Midlands Royal British Legion, said the decision was "disgusting", while Carol Jones, whose 37-year-old soldier son John was killed in Iraq, said she "couldn't believe" the situation.